How big should ‘son of Wallis’ grow?

The Federal Treasurer, Joe Hockey, has signalled a “son of Wallis” review of the Australian financial system and, as Mike Taylor writes, the industry is already starting to write the agenda with respect to regulation and external dispute resolution. 

The Federal Treasurer, Joe Hockey, may be wondering whether he has let the genie out of the bottle with his promise of a “son of Wallis” review of the Australian financial services sector. 

In the few weeks which have elapsed since the Federal Election, Money Management and its sister publication Super Review have conducted roundtables and thought leadership panel discussions where the almost unfailing common denominator has been suggestions of what should be added to the agenda of such a review. 

On the plus side for Joe Hockey is the reality that many industry participants believe a “son of Wallis” is both justified and timely. On the negative side for the new Treasurer is the question of just how broad such a review may ultimately need to be. 

And at the top of the agenda for many financial planners is fixing up external dispute resolution and the professional indemnity insurance (PI) requirements which are part and parcel of running a financial planning practice. 

At a breakfast forum jointly hosted last Thursday by Money Management and its stable-mate, Lawyers Weekly, it became abundantly clear that while the external dispute resolution regime provided by the Financial Ombudsman Service (FOS) remains in active use, it is viewed as dysfunctional by both planners and many in the legal profession. 

Indeed, the principal of specialist law firm Alexis Compliance and Risk, Christina Kalantzis, revealed the degree to which financial planning practices were prepared to spend money utilising services such as hers to avoid the necessity of interacting with the FOS. 

Somewhat remarkably, the FOS company secretary, Nicolas Crowhurst, told the thought leadership breakfast that disputes being resolved before they actually reached his organisation represented a satisfactory outcome so far as he was concerned. 

However the clear message being delivered by the planners who attended the breakfast forum, together with the likes of Kalantzis and specialist lawyer Cain Jackson of Wotton and Kearney, was that the external dispute resolution processes and the involvement of FOS were less than optimal. 

Indeed, Jackson suggested ahead of the breakfast forum that FOS did not provide a fair forum for hearing large-scale disputes. 

“My sense is that they are still under-resourced and the jurisdictional limit is still far too high for the lack of sophistication and lack of procedural certainty that is provided by the service,” he said. 

Jackson further stimulated the debate the breakfast forum when he also suggested that financial planners were being specifically targeted by law firms intent on driving up their litigation revenues. 

He said planners had become identified as targets by the law firms because they were the most vulnerable – due to their heavy burden of regulation and its impact on claims against their professional indemnity insurance. 

At a panel discussion hosted by Money Management’s sister publication Super Review last week, the senior participants were less focused on external dispute resolution and more focused on the fact that no fewer than three regulators were now overseeing the superannuation industry – the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO). 

Indeed, the chairperson of the Superannuation Complaints Tribunal, Jocelyn Furlan, reflected that about a third of all superannuation assets (those held in self-managed superannuation funds) were now administered by the ATO. 

Other panelists, including Mercer’s Steve Schubert, suggested that this was a reason why any financial systems review process should reflect upon the current regulatory environment, albeit that he believed ASIC and APRA achieved two very different but necessary outcomes. 

For Vision Super chief executive, Peter Rowe, however, the issue was not so much one of how many regulators were overseeing the industry, but the cost of that regulation and transparency around those costs. 

Both Schubert and Furlan reflected upon the fact that a Senate Committee was currently inquiring into the operations of ASIC, and suggested that this might act as a precursor to a review of the broader regulatory environment. 

The bottom line, however, is that there exists an industry expectation that any “son of Wallis’ should not only review the regulatory environment and the effectiveness or otherwise of the three separate regulators, but also the external disputes resolution service which has evolved to be covered by FOS. 

As new Treasurer, Joe Hockey might feel daunted by the depth of feeling around issues such as the regulatory environment, but he can at least satisfy himself that his proposed financial system inquiry will take a number of years to complete and then at least another couple of years to implement. 

In the meantime, the somewhat fractious relationship between planners, lawyers and FOS is likely to continue.